Huffington Post co-founder and former America Online executive Ken Lerer declined to comment on the funding, but a knowledgable source says the company has been talking to VCs and hopes to close the round by the end of summer.

HuffPo, as it is affectionately known, enjoys more than 1.3 million unique visitors monthly, according to Nielsen/Netratings. This despite the fact that most of the Hollywood stars and political heavyweights who promised to blog for Huffington stopped showing up several months after the site launched....

Why it needs $5 million in outside capital to fulfill its vision is another question. Clearly, its founders aren't hurting for money. Moreover, two weeks ago, Huffington inked an agreement with IAC/Interactive Corp., in which IAC's Advertising Solutions sales group will exclusively sell advertising for the site. Malik, who has a similar agreement with ad sales startup Federated Media, says such deals "let people focus on content and not worry about the ad stuff."

Huffington's efforts to raise outside capital may suggest that it plans to sell itself to a larger media property down the road. At least one other political blogger says he has no interest in VC because he wants to remain independent. Markos Moulitsas, founder of left-leaning political blog Daily Kos, says: "For me, outside investment is not necessary and it would make little sense for me to jeopardize the site's independence for a little more cash." He says his site is "extremely successful financially," thanks to advertisements, including one featured last week from Working America, a community affiliate of the AFL-CIO.

62 comments:

A lot of Kos' traffic is illusory. (To his credit, he doesn't go around talking about how he gets a million visitors a day, either.) 10,000 people who hit refresh 10 times a day, versus 100,000 people who visit once a day - same traffic figures.

Kos has a lot of refresh-obsessives. (And there's nothing wrong with that - those repeat eyeballs are worth something to advertisers, because it takes 7 to 10 impressions for an ad to really get someone's attention.)

Easy.. When you see a situation you can't understand, look for the financial motive. I have to assume the vision is to raise money for furthering some agenda(s) and the present reality isn't cutting it.

This all reminds me of the dot com boom/bust, people thinking they could get rich just by having a web site. What possibly could she need venture capital for? Vlogs and yellow offices?

Why is it that the left has such a hard time cracking into the "ideas" communication market? First Air America, now HuffPo.

They spend an inordinate amount of time complaining about conservative talk radio and conservative blogs (even though most are NOT) rather than giving the public/market what they are seeking - fresh ideas, open forums, common ideals, etc.

For the so-called defenders of free speech, the left sure knows how to "capitalize" on it - or at least thinks they do!

Just to clarify, the article said 1.3 milion "unique visitors". The Instapundit graph said visits. Are we talking apples to apples?

As to the PE and the $5MM, dahling Arianna is just hedging her Huffpo bet by selling a stake in the blog and thus taking some of her chips off the table. It happens every day in the PE world. Arianna can probably keep a million or so, and the rest gets plowed back into that fancy-looking Huffpo blog.

Ben, maybe you just have a better spam filter than he does. VC isn't looking for safe, sound investments, or even small, steady returns. It's looking for potential home runs. That's the problem I would expect Huffington to face: there's not really any home run potential there from a money-making standpoint.

Just to clarify, the article said 1.3 milion "unique visitors". The Instapundit graph said visits. Are we talking apples to apples?

Maybe.

On sitemeter, "visits" means unique visitors who haven't left for more than 30 minutes. So, if you leave and come back two hours later, it's two visits. If you leave and come back within 15 minutes, it's one visit.

I don't know how HuffPo counts "unique visitors." Could be similar, could be different.

Does any one visiting a Soros type site have any confidence in the opinions expressed there? I don't. People are on payrolls, and get money funneled to them in ways that are not transparent.

Those that visit and drink deep and swallow from the Soros type site cup, have more than confidence, they have faith, that the views expressed on those sites are the only 'reality-based' views available.

Just thinking outloud....take VC funds, sell ad space at cut-rate prices to friendly political campaigns and pay writers, who just happen to also be campaign consultants/staffers, above market rates for glorified press releases favorable to your ad-buyers.

Wash. Rinse. Repeat and get around all those pesky campaign finance rules because you're just running a website (or a radio network).

Why all the fuss over this money? She has a number of paid staff, and it had been coming out of her (and her partners', I suppose) pocket(s). Kos' contributors aren't paid, and Glenn writes his site as sort of a hobby.

The site does have ads, but who knows whether that covers all the costs. Maybe the original investors were told they'd start getting paid back by now. Huffington also remarked in an interview that she needed to start showing a profit at some point, otherwise the IRS would no longer let her deduct expenses (her site would be seen as a hobby). By using money raised this way to cover some expenses, perhaps her advertising income can be made to look like profit, alleviating her IRS problems.

Why $5 million, and not $500,000? Probably because you don't want to be running fundraisers constantly. (It leads to too much idle speculation and bad publicity - as this post exemplifies.) Better to raise a larger sum, and be done with it for a while.

So $5 mil sounds like a lot to run a website? How much did PJ media raise? (And most of their writing is from unpaid bloggers.)

I don't care for Hufington's site or politics either. But I understand the desire to try and remain solvent while running a business.

The burning question, STILL, is "Why did Pajamas Media need seven million dollars to start a group blog?" Everyone else does it for ten dollars a month, or they do it for nothing at Blogspot.

The more amazing question is, "How did Pajamas Media find a way to blow their ridiculous stores of capital fast enough to cause internal panic and turmoil?" What the hell are they spending it on? They do absolutely nothing, as far as anyone can tell. In nine months, not one of their nutty promises has materialized.

HuffPo's traffic figures are way below the abysmal-failure threshold. Any female blogger who link-whores and shows her boobs once a week can do better. Only a moron or a True Believer would give them a dime, now that there is no doubt that HuffPo is a flop.

Why is it taking these proven failures so long to die? Venture capitalists must be as gullible as lemmings.

Uncle Aubrey, if you're listening, I'm still willing to open a lemonade stand for nine million and change. And I promise to lose your money WAY slower than Pajamas Media. You can't beat a deal like that.

Yes Ann, I understand this is venture capital and not patrons. If the investors don't see a means to make money, they won't invest.

Wait, let me rephrase that: If the investors don't see something in it for them, they won't invest. Investors have all kinds of reasons for investing, and sometimes making a profit is just a pretext. Look at investors in Broadway plays, for example. Profits in such ventures are rare. Most restaurants go under, as well, but here in Manhattan they open and close like revolving doors. Retail businesses? Most fail inside a year. Most books don't sell, most movies are forgotten, few documentaries get noticed... I could go on and on re the precarious nature of most business ventures.

If the question is: How will HuffPo make investors money, my answer is, "it won't". (Neither will Pajamas Media, most likely.) But you're assuming that this means investors won't invest, and that's not necessarily so. Some iinvestors may want to ally themselves with a particular ideology, or rub elbows with the Hollywood stars the site supposedly attracts.

Some investors may mistake a HuffPo for a Google (in terms of a business they don't understand, which makes money anyway). Don't underestimate this factor. Check out this month's WIRED, in which Rupert Murdock is lauded for his 'astute' purchase of MySpace. Does Fox make money off the site (after the purchase price and upgrade costs)? Hell, no! Does Murdock know how he WILL make money off it? Uh, he's mulling that one over. But the site's community is bigger than ever, and therefore the investment was a 'good' one. The assumption is that someday, someway, the economics of the thing will become clear. (Who cares that MySpace could become the next Friendster if readers bolt for the next shiny new thing?)

HuffPo has every right to make the best possible case for itself, and to seek outside investment. Investors have the right to seek better opportunities, and would be prudent to do so. But it's not MY money.

How does McCain-Feingold cover this? You're talking about the press, not contributions to candidates. Anyone can use their own money to start a newspaper and to run it at a loss and spout political opinions.

I think Ann hit on the $5 million question. Politics aside, though, I'd love to see the business plan the HuffnPuff is forwarding to the VCs. If they have any idea of an arms-length transaction, I'm guessing the document is being kept around for entertainment purposes (no doubt beating anything on the sight.)

Chuck R makes an interesting point. And what if my indirect contribution to a candidate consisted of a newsletter that employed a key campaign staffer as a sort of 'no-show' job (the staffer might show up, but (s)he really was doing work for a campaign)? Further, what if that paper took its editorial lead from the candidate's campaign?

Such a scheme would certainly smell bad, but wouldn't it also skirt many laws regarding campaign contributions? No money is going directly to the campaign, yet I am underwriting a key staffer and producing 'unofficial' campaign communications.

I didn't mean that McCain Feingold covered this (God I hope not), but rather that if it is an allowable constraint on political speech (so far it is), couldn't there be another law passed to cover internet-based political free speech? If a blog has a business model that aligns it more closely with media - which are ostensibly in the P&L business - could this give them cover? How much differnce is there between a vlog/pod-cast and Franken's maunderings?

Sippican, I should have clarified: I avoid PJMedia simply because I don't trust that it's worth reading; I was pretty disappointed in their product at the beginning. I read Glenn Reynolds all the time and I believe he does great editing and publishes the best links... but when he sends me to PJM, I have to question his motivations, so I don't go. There's simply too much I know I want to read as it is, and just don't have time. My intention wasn't to lump them in with HuffPoo, moneybags-wise...

1. Maxine, I know for sure that DailyKos.com does not, ever, sell its member's email addresses or spam people. Ever. You are getting spammed for some other reasons.

2. On campaign finance law: there is no issue. A website, even if incorporated, that engages in news, opinion and commentary about political issues is exempt from campaign finance law, just as it would be in print or on radio -- so long as it is not owned or controlled by a campaign, party or PAC. The FEC has even gone so far, for example, to say that a radio show could let Bob Dornan be a guest host simultaneous with his running for office without raising any legal question.

I took the liberty of running a couple of basic calculations. If we assume fairly standard venture capital valuation methodolgies and fairly standard discount rates for the industry (40%), we'd have to assume that Ms. Huffington would have to be able to sell her blog for almost $27 million in 5 years to justify the infusion she's asking for. That's assuming the VC firm gets 100% ownership. If we use a more generous 30% discount rate, she'd have to be able to sell it for $18.5 million. If this isn't a McCain-Feingold dodge, someone is getting robbed.